Shanghai banks' business with property agencies halted

Ads of pre-owned apartments for sale are displayed on the glass at a branch of Chinese real estate agency Lianjia, also known as Homelink, in Shanghai, February 23, 2016.[Photo/IC]

Regulator says the month-long suspension will help establish an honest credit system

The banking regulator in Shanghai on Monday suspended business between commercial banks and six real estate agencies for a month for violating its rules.

The Shanghai Office of the China Banking Regulatory Commission said it found that some agencies offered financing to homebuyers for down payment, which was against its regulations.

The agencies include the Shanghai arms of Beijing-based Homelink Real Estate Brokerage Co, Pacific Rehouse Co and Shanghai Hanyu Property Brokerage Co.

The regulator also suspended the personal mortgage business for two months of seven branches of banks, including Industrial & Commercial Bank of China Co, Bank of China Ltd and HSBC Holdings Plc.

The CBRC said these measures will help establish an honest credit system among commercial banks, real estate agencies and mortgage applicants to ensure the healthy development of the Shanghai real estate market.

Tightening up down payment management is an effective measure to curb fast-rising housing prices and is also a measure to nip credit risks in the bud, according to Catherin Chen, research director with LaSalle Investment's China operations.

"The emergence of down payment financing in some local markets in China have raised concerns of not only regulators but also of market players. When a buyer cannot afford the down payment and seek help from down payment financing, no matter offered directly by real estate agencies or indirectly from lenders, it bears affordability risks, which may turn into nonperforming loan issue," said Chen.

Calls to Pacific Rehouse went unanswered on Monday. An agent with Shanghai Hanyu Property, who spoke on condition of anonymity, said the business of the agency is "of course hugely affected because almost 90 percent of buyers need mortgage, and suspension of mortgage collaboration with banks means suspension of having new buyers."

Shanghai's municipal government has taken steps in recent months to curb surging property prices in the city, which rose more than 20 percent year-on-year in the first quarter of 2016 on average.

The measures included raising down payment requirements for some applicants for mortgage when purchasing their second homes.

Housing regulators have also been investigating real estate agencies for allegedly providing unauthorized loans or assisting buyers to use deceptive practices to fraudulently obtain a loan.